Lecture Notes 9 - Equity Equity is harder to define and...

Equity • Equity is harder to define and measure than efficiency, for which economists use Pareto efficiency as a lead standard. – A subjective concept • Process-oriented notions of equity focus on the procedures used to arrive at an allocation of resources – Is the free market a fair process? – Libertarians advocate laissez-faire for the free market on this view • Outcome-oriented notions focus on whether the process used to allocate resources yields fair results – Some focus on the distribution of well-being, e.g., utilitarianism – Moving purchasing power from higher to lower utility folks raises total utility due to declining marginal utility of income. – “Behind the veil” social contract perspective of John Rawls.

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Social Welfare Functions • Economists use social welfare functions to summarize judgments about resource allocations – For each possible allocation, the function assigns a number that indicates the overall level of social welfare – Higher numbers reflect greater social well-being

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